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Why additionality matters

Yesterday I posed the question, “Why all the fuss about additionality?” Today I answer that question.

Recall that you hear at least two lines of argument about why we should stop worrying about strict additionality. The first is that strict additionality is too difficult to measure. We should therefore redefine the concept of additionality to be “projects we like” so that offsets can be used to reward renewable energy development and other good things. The second is a twist on the first: additionality is too hard to measure, so we should chuck out the whole idea of offsets and unlink subsidies for projects we like from carbon markets.

Neither of these criticisms addresses the theoretical appeal of strict additionality, which is uncontroversial. Even critics of additionality in practice would probably agree that if additionality could easily and reliably be measured, we would want to favor additional projects over non-additional ones.

Instead, the criticisms focus on the practical utility of additionality. So setting aside the theoretical appeal of strict additionality, are there practical reasons why we should embrace strict additionality, even if we know we can’t measure it perfectly?

The answer is a clear yes, and the reason is that additionality is key to the integrity of carbon markets. Offsets aren’t simply a tool for rewarding good projects, such as methane digesters on small dairy farms. Rather, offsets are a financial instrument that link good projects into a regional or global marketplace for emissions reductions.

If such markets are to have any integrity, offsets must be additional. If the offsetting reductions would have happened in the absence of the carbon market, the market as a whole will fail to achieve its environmental objective.

Further, one of the main purposes of a carbon market is to set a clear price for carbon emissions that industry can use for planning and investment purposes. If offsets are non-additional, that price becomes distorted. The market ceases to function properly.

The second criticism of additionality is therefore more coherent than the first. Offsets, after all, aren’t strictly necessary for a cap-and-trade system. If you get rid of offsets, you get rid of additionality concerns.

The problem here is that you also lose out on a potentially vast source of carbon reductions. Attempts have been made to estimate the potential global supply of offsets. Although these efforts are admittedly rough, they generally place the figure in the billions of tons of CO2.

Keeping in mind the higher-order goal of reducing CO2 emissions as quickly and cost-effectively as possible, it is worthwhile to integrate those billions of tons of potential savings into the global carbon market. And additionality is the key to doing so.

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